Field v. Wells Fargo Bank, N.A. - Document 13
ORDER DENYING DEFENDANT'S MOTION TO WITHDRAW THE REFERENCE re 1 - Signed by CHIEF JUDGE SUSAN OKI MOLLWAY on 12/20/12. " Wells Fargo may move to withdraw the reference if it appears the case is proceeding to jury tria l. Until then, the reference remains in effect, and the Bankruptcy Court may issue proposed findings and a recommendation on any matter that only a district judge may issue a final ruling on." (emt, )CERTIFICATE OF SERVICEParticipants registered to receive electronic notifications received this document electronically at the e-mail address listed on the Notice of Electronic Filing (NEF). Participants not registered to receive electronic notifications were served by first class mail on the date of this docket entry
IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF HAWAII
DANE S. FIELD, Bankruptcy
Trustee of the Mortgage
WELLS FARGO BANK,
CIVIL NO. 12-510 SOM/BMK
ORDER DENYING DEFENDANT’S
MOTION TO WITHDRAW THE
ORDER DENYING DEFENDANT’S MOTION TO WITHDRAW REFERENCE
This is a fraudulent transfer action case initiated by
Plaintiff Dane S. Field, Trustee of the estate of The Mortgage
Store, Inc. (“The Mortgage Store”), against Defendant Wells Fargo
pursuant to 11 U.S.C. § 544(b) and Haw. Rev. Stat. §§ 651C-4(a)
The Trustee alleges that The Mortgage Store’s private
borrowing program operated as a Ponzi scheme.
Compl. ¶¶ 9-10.
In 2007, when George Lindell was the president and sole
shareholder of The Mortgage Store, The Mortgage Store made two
transfers of nearly $200,000 each to Wells Fargo Bank (the “2007
transfers”) to pay down the balance on Lindell’s personal home
equity line of credit.
Id. ¶¶ 12-13.
In 2010, The Mortgage
Store filed a Chapter 7 bankruptcy petition, saying that it owed
approximately 113 private lenders over ten million dollars.
The Trustee for The Mortgage Store alleges that the
2007 transfers were “made in the furtherance of a fraud by
Lindell, and without any benefit accruing to The Mortgage Store.”
Opp’n at 3.
The Trustee therefore contends that “he is entitled
to avoid both transfers to Wells Fargo Bank, in the principal
amounts of $197,555.92 and $195, 931.34, together with interest
on these amounts, pursuant to 11 U.S.C. § 544(b) and Haw. Rev.
Stat. §§ 651C-4(a) and 651C-5(a).”
Before the court is Wells Fargo’s motion to withdraw
this court’s reference to the Bankruptcy Court so that the case
may be heard by a district judge.
Motion, ECF No. 1.
denies the motion.
STANDARD OF REVIEW.
Federal district courts have jurisdiction over all
bankruptcy cases under title 11.
28 U.S.C. § 1334.
Bankruptcy Rule 1070-1(a) provides that, pursuant to 28 U.S.C.
§ 157(a), all civil proceedings arising in or related to a case
under title 11 are referred to the bankruptcy judges of this
A party who believes that a proceeding pending in the
Bankruptcy Court should instead be litigated before the district
court may move for mandatory or permissive withdrawal of that
reference pursuant to 28 U.S.C. § 157(d), which provides:
The district court may withdraw, in whole or
in part, any case or proceeding referred
under this section, on its own motion or on
timely motion of any party, for cause shown.
The district court shall, on timely motion of
a party, so withdraw a proceeding if the
court determines that resolution of the
proceeding requires consideration of both
title 11 and other laws of the United States
regulating organizations or activities
affecting interstate commerce.
28 U.S.C. § 157(d) (emphasis added).
Motions to withdraw a
reference are heard by the district court.
Fed. R. Bankr.
“The party moving for withdrawal of the reference has
the burden of persuasion.”
Hawaiian Airlines, Inc. v. Mesa Air
Group, Inc., 355 B.R. 214, 218 (D. Haw. 2006).
Withdrawal of the Reference is Not Mandatory.
Wells Fargo first argues that withdrawal of the
reference is mandatory.
Wells Fargo repeatedly argues that
withdrawal of the reference is mandatory in this case.
Motion at 3-5.
The Bankruptcy Code requires a district court to
withdraw the reference only when “resolution of the proceeding
requires consideration of both title 11 and other laws of the
such a case.
28 U.S.C. 157(d) (emphasis added).
This is not
The only non-title 11 laws at issue in this case
are state laws.
See Motion at 4 (explaining that the other
claims involve Haw. Rev. Stat. §§ 651C-4(a) and 651C-5(a)).
Because the only claims at issue that do not fall under title 11
are state-law claims rather than federal-law claims, 28 U.S.C.
157(d) does not require withdrawal of the reference.
Additionally, Wells Fargo’s reliance on Picard v. HSBC
Bank PLC, 450 B.R. 406 (S.D.N.Y. 2011), is unavailing.
Fargo cites Picard in support of its assertion that “[w]ithdrawal
is mandatory in cases where substantial and material
consideration of non-bankruptcy statutes is necessary for the
resolution of the proceeding.”
Motion at 3.
In fact, Picard
provides that “a litigant can mandate withdrawal of the
bankruptcy reference where the movant shows that, absent the
withdrawal, the bankruptcy judge would be obliged ‘to engage in
significant interpretation, as opposed to simple application, of
federal laws apart from the bankruptcy statutes.’”
B.R. at 409 (citing City of New York v. Exxon Corp., 932 F.2d
1020, 1026 (2d Cir. 1991)).
Federal laws other than the
bankruptcy statutes are not at issue in this case.
Wells Fargo has not demonstrated that the bankruptcy judge would
be required to engage in “significant interpretation” of any
laws, state or federal.
As part of its argument that withdrawal of the
reference is mandatory, Wells Fargo also argues that the
Bankruptcy Court does not have jurisdiction to hear this case
because “the Trustee’s claims are non-core and the parties have
not unanimously consented to a final adjudication of the non-core
claims by the Bankruptcy Court.”
Motion at 5.
Wells Fargo adds
that “the Bankruptcy Court does not have jurisdiction to preside
over a jury trial on non-core issues” such as “state law claims
under Haw. Rev. Stat. § 651-C-4(a) and Haw. Rev. Stat. § 651C5(a).”
Motion at 3-4.
The Bankruptcy Court has jurisdiction over all matters
related to a case arising under title 11.
See 28 U.S.C. § 1334,
28 U.S.C. §§ 157(a)-(b)(1), Local Rule 1070.1(a).
Court starts with determining whether a matter is core or
28 U.S.C. § 157(b)(3).
The Bankruptcy Court may hear
both core and noncore matters, but may not enter a final judgment
in a noncore proceeding.
28 U.S.C. § 157(c)(1).
noncore proceedings, “the bankruptcy judge shall submit proposed
findings of fact and conclusions of law to the district court,
and any final order or judgment shall be entered by the district
Wells Fargo does not challenge the applicability of any
of the statutes giving rise to the Bankruptcy Court’s
jurisdiction over this case.
See 28 U.S.C. § 1334, 28 U.S.C.
Wells Fargo is correct that withdrawal of the
reference may eventually be appropriate if this case proceeds to
a jury trial of noncore matters.
See Taxel v. Electronic Sports
Research, 916 F.2d 1444, 1451 (9th Cir. 1990) (concluding that
“bankruptcy courts cannot conduct jury trials on noncore matters,
where the parties have not consented”).
However, this case is in
its infancy, and it may never be submitted to a jury.
notes, moreover, that both of The Mortgage Store's claims falling
outside of title 11 are state-law claims that relate to
fraudulent transfers, which are widely deemed to involve core
See 28 U.S.C. § 157(b)(2)(H) (classifying
"proceedings to determine, avoid, or recover fraudulent
conveyances" as core); In re Bellingham Ins. Agency, Inc., 2012
WL 6013836 (9th Cir. Dec. 4, 2012) (explaining that "Congress has
designated fraudulent conveyance actions core proceedings . . .
which non-Article III judges could decide"); Field v. Levin, 2011
WL 3477101, at *2-3 (D. Haw. Aug. 8, 2011) (stating that
fraudulent transfer claims are core bankruptcy matters).
case, a determination as to whether this case involves core or
noncore matters is ordinarily a matter for the Bankruptcy Court
28 U.S.C. § 157(b)(3) (providing that a bankruptcy
judge shall determine whether a proceeding is a core proceeding).
Even if the Bankruptcy Court concluded that the
fraudulent transfer claims in this case were noncore matters,
that conclusion would not affect the Bankruptcy Court’s
jurisdiction over at least preliminary, nonjury, and
28 U.S.C. § 157(c)(1)
(explaining that bankruptcy judges may hear noncore proceedings
otherwise related to a case brought under title 11).
Because Wells Fargo does not establish that withdrawal
of the reference is mandatory, this court denies the first
portion of Wells Fargo’s motion.
The Court Declines to Exercise Permissive
Jurisdiction Over Pretrial Matters.
Wells Fargo argues that, even if withdrawal of the
reference is not mandatory, this court should exercise its
discretion to withdraw the reference.
Motion at 5.
complains that, because any final judgment must be entered by an
Article III judge, “at best, the Bankruptcy Court would only be
able to submit this matter to the District Court on proposed
findings of fact and conclusions of law, which the District Court
would then have to review on a de novo basis.”
Id. at 6.
Fargo concludes: “This duplication of effort would result in a
waste of time and resources and would significantly prejudice the
parties to the Adversary Proceeding.
Accordingly, Wells Fargo
submits that there is just cause for granting permissive
withdrawal of the reference in this case.”
Permissive withdrawal is a discretionary action that
requires a showing of cause.
See 28 U.S.C. § 157(d) (stating
that the district court “may” withdraw a proceeding “for cause
In the Ninth Circuit, permissive withdrawal is only
allowed “in a limited number of circumstances” and for “good
Hawaiian Airlines, 355 B.R. at 223.
A defendant’s right to a jury trial need not lead to
the immediate withdrawal of the reference at the start of a case.
The case may remain with the Bankruptcy Court for pretrial
In re Healthcentral.com, 504 F.3d 775, 788 (9th Cir.
2007) (finding that, even when a defendant does not consent to a
jury trial before a Bankruptcy Court pursuant to 28 U.S.C.
§ 157(e), a “valid right to a Seventh Amendment jury trial in the
district court does not mean the bankruptcy court must instantly
give up jurisdiction and that the action must be transferred to
the district court”).
The Ninth Circuit’s recent decision, In re Bellingham
Ins. Agency, Inc., 2012 WL 6013836 at *10, analyzes approvingly
the procedure under which a Bankruptcy Court issues proposed
findings of fact and conclusions of law on matters, even if final
judgment may be entered only by Article III judges:
In sum, § 157(b)(1) provides bankruptcy
courts the power to hear fraudulent
conveyance cases and to submit reports and
recommendations to the district courts. Such
cases remain in the core, and the § 157(b)(1)
power to “hear and determine” them authorizes
the bankruptcy courts to issue proposed
findings of fact and conclusions of law.
Only the power to enter final judgment is
Because the Bankruptcy Court clearly retains the power to hear
this case, and at least issue proposed findings and conclusions
and/or a recommendation as to dispositive matters, this court
sees no reason to withdraw the reference at this point in the
Wells Fargo contends that its early request for
withdrawal of the reference avoids the need to have both the
Bankruptcy Court and the district court spend time becoming
familiar with the issues in the case, which might be the case
with a later withdrawal request or with this court’s de novo
review of the Bankruptcy Court’s proposed ruling.
But that still
leaves the matter of wasting the opportunity to have the
Bankruptcy Court deal with matters it has expertise and
As the court said in Field v. Levin,
Transfer of this case would be premature at
this time. The main causes of action alleged
in this adversary proceeding are fraudulent
transfer claims, which are core bankruptcy
matters. Because of the bankruptcy court's
unique expertise in such matters, it would be
an inefficient allocation of judicial
resources to withdraw the claims at this
2011 WL 3477101, at *3 (D. Haw. Aug. 8, 2011).
“Should a jury trial ultimately be warranted and
necessary, Defendants may again seek to withdraw the action to
this court after all pretrial matters have been resolved in the
Id. at *4.
Indeed, The Mortgage Store has
promised that it will “not object to an eventual withdrawal of
reference, if a jury trial becomes necessary, at the time of an
imminent jury trial, as is the practice of this Court.”
11 fn. 8.
For the reasons stated above, the court denies Wells
Wells Fargo may move to withdraw the reference
if it appears the case is proceeding to jury trial.
the reference remains in effect, and the Bankruptcy Court may
issue proposed findings and a recommendation on any matter that
only a district judge may issue a final ruling on.
IT IS SO ORDERED.
DATED: Honolulu, Hawaii, December 20, 2012.
/s/ Susan Oki Mollway
Susan Oki Mollway
Chief United States District Judge
Dane S. Field, Bankruptcy Trustee of the Mortgage Store, Inc. v. Wells Fargo Bank, 12cv-00510 SOM/BMK, ORDER DENYING DEFENDANT’S MOTION TO WITHDRAW THE REFERENCE